Financialization Of Commodity Research Articles

Price effects of commodity financialization: Review of the evidence

AbstractFollowing the 2007/2008 financial crisis, the price effects of commodity financialization have become an important research topic. We review the empirical evidence, focusing on statistical approaches and econometric models, and find that (1) Granger‐causality tests are unable to establish a relationship between commodity futures prices and funds of financial investors, implying a lack of evidence that financialization influences commodity futures prices and (2) studies that use correlation and price spread analysis mostly report evidence of a significant price effect of financialization. Thus, the statistical and econometric approaches adopted by the various studies influence the empirical findings. In addition, data identification may have an impact since economic models and statistical techniques can be sensitive to slight differences in the dataset. Our study of the literature shows that the definition of financialization is open‐ended and ambiguous. A theoretical literature review on financialization could be the logical next step.

Financial regulatory arbitrage and the financialization of commodities

AbstractWe explore the effects of financial regulatory arbitrage on commodity pricing. We examine two types of financial arbitrage: capital‐control arbitrage, in which commodities are imported to circumvent capital controls and profit from disparities in interest rates between domestic and international markets, and dual‐track interest‐rate arbitrage, in which commodities are utilized as collateral to capitalize on domestic dual‐track interest‐rate spreads. Our findings demonstrate that both forms of arbitrage positively affect commodity price returns. However, they affect the inverse relationship between inventory and convenience yield differently. While capital‐control arbitrage can either amplify or weaken this relationship, dual‐track arbitrage makes it less negative.

Nexus between financialization of agricultural products and food security amid financial crisis: empirical insights from BRICS

PurposeThe study endeavors to explore whether the financialization of agricultural commodities, traditionally viewed as a catalyst for price volatility, has any repercussions on food security in BRICS economies.Design/methodology/approachThe empirical analysis employs the examination of three agricultural commodities, namely wheat, maize and soybean. Utilizing data from the Chicago Board of Trade on futures trading for these commodities, we focus on parameters such as annual trading volume, annual open interest contracts and the ratio of annual trading volume to annual open interest contracts. The study spans the period 2000–2021, encompassing pre- and post-financial crisis analyses and specifically explores the BRICS countries namely the Brazil, Russia, India, China and South Africa. To scrutinize the connections between financialization indicators and food security measures, the analysis employs econometric techniques such as panel data regression analysis and a moderating effects model.FindingsThe results indicate that the financialization of agricultural products contributes to the heightened food price volatility and has adverse effects on food security in emerging economies. Furthermore, the study reveals that the impact of the financialization of agricultural commodities on food security was more pronounced in emerging nations after the global financial crisis of 2008 compared to the pre-crisis period.Research limitations/implicationsThis paper seeks to draw increased attention to the financialization of agricultural commodities by presenting empirical evidence of its potential impact on food security in BRICS economies. The findings serve as a valuable guide for policymakers, offering insights to help them safeguard the security and availability of the world’s food supply.Originality/valueVery few studies have explored the effect of financialization of agricultural commodities on food security covering a sample of developing economies, with sample period from 2000 to 2021, especially at the individual agriculture commodity level. Understanding the evolving effects of financialization is further improved by comparing pre and post-financial crisis times.

The convenience yield under commodity financialization

AbstractA number of papers have dealt with commodity financialization finding strong evidence for its existence and its effect on commodity prices and volatility. We chose convenience yield (CY) to study the effect of commodity financialization based on the theory of storage and on the argument that CY resembles a call option. Using quarterly data in the period 1995–2018, on soybeans stocks, cash and futures prices, a dynamic Autoregressive Distributed Lag with Exogenous model is estimated to measure the effects of independent variables from both the financial and commodity markets on CY. The evidence reveals that financial markets volatility along macroeconomic global variables affect soybeans CY giving support to the existence of commodity financialization. Besides, we find a statistically significant and negative relation between volatility index and CY. Support for this evidence rests on the theory of storage, Real Option Analysis, and behavioral finance.

A data-driven approach for optimal operational and financial commodity hedging

Commodity price risk management has been subject to various modeling and optimization approaches. Recently, data-driven policies focusing on the decision rather than prediction quality have been developed to overcome price model misspecification. Yet, in the context of data-driven commodity purchasing, the existing literature either considers anticipatory inventory management or forward contracting where the decision frequency corresponds to the maturity of the traded contracts. We prove the optimality of a novel procurement policy combining operational and financial instruments with decision granularities independent of the derivative’s maturity. A mixed-integer programming model is developed to train policy parameters efficiently. We study the implications of policy complexity for learning-stability and out-of-sample generalization. Finally, we backtest the data-driven policy on real market data of four major commodities (i.e., copper, nickel, corn, and soybean) over ten years and show that the average savings potential of a combined financial and operational procurement policy compared to single-instrument strategies is up to 6.38% for corn where warehousing can efficiently mitigate price seasonality. The approach hedges corn and soybean commodities more efficiently through inventories while copper and nickel can be hedged efficiently by leveraging available financial instruments. Best model results are identified for a decision granularity with fewer parameters as high-frequent decisions deteriorate learning stability and model generalization.

Does the financialization of agricultural commodities impact food security? An empirical investigation

The possible effect of the financialization of agricultural commodities on food security has become an evolving worry in recent years. This study seeks to empirically investigate this complicated problem and influence policy choices to ensure a more stable and secure food system by analyzing the role of financialization in global food markets. The study uses the panel data regression model, moderating effects model, and panel data regression with threshold variable to analyze financialization due to three agricultural commodities: wheat, maize, and soybean. For wheat, maize, and soybean futures traded on the Chicago Board of Trade, we utilize data related to annual trading volume, annual open interest contracts, and a ratio of annual trading volume to annual open interest contracts. The sample covers five developed countries - the United States, Australia, Canada, France, and Germany, and seven developing countries- China, Russia, India, Indonesia, Brazil, Vietnam, and Thailand. Annual panel data are constructed for the 2000–2021 period. The Human Development Index (HDI) is the threshold variable to differentiate the impact across these countries. The findings reveal that the financialization of agricultural commodities has negatively impacted food security globally, with wheat and soybean having a greater negative impact than corn. Also, there is a more considerable impact on developing countries compared to developed countries. The study finds that monetary policy can potentially reduce the impact of agricultural financialization on food security. The findings of this paper act as a guide to assist policymakers in ensuring that the world's food supply stays secure and available.

Dynamic asymmetric spillovers and connectedness between Chinese sectoral commodities and industry stock markets.

This study investigates the dynamic and asymmetric propagation of return spillovers between sectoral commodities and industry stock markets in China. Using a daily dataset from February 2007 to July 2022, we employ a time-varying vector autoregressive (TVP-VAR) model to examine the asymmetric return spillovers and dynamic connectedness across sectors. The results reveal significant time-varying spillovers among these sectors, with the industry stocks acting as the primary transmitter of information to the commodity market. Materials, energy, and industrials stock sectors contribute significantly to these spillovers due to their close ties to commodity production and processing. The study also identifies significant asymmetric spillovers with bad returns dominating, influenced by major economic and political events such as the 2008 global financial crisis, the 2015 Chinese stock market crisis, the COVID-19 pandemic, and the Russia-Ukraine war. Furthermore, our study highlights the unique dynamics within the Chinese market, where net information spillovers from the stock market to commodities drive the financialization process, which differs from the bidirectional commodity financialization observed in other markets. Finally, portfolio analysis reveals that the minimum connectedness portfolio outperforms other approaches and effectively reflects asymmetries. Understanding these dynamics and sectoral heterogeneities has important implications for risk management, policy development, and trading practices.

A NodeMCU Based Low-Cost Portable Device for Change Indication in Multiple Financial Commodities of Various Market Paradigms

A NodeMCU Based Low-Cost Portable Device for Change Indication in Multiple Financial Commodities of Various Market Paradigms

Analysis on factors affecting tourist involvement in coffee tourism after the COVID-19 pandemic in Thailand.

The world economy was broken by the COVID-19 pandemic, which affected the coffee industry. The COVID-19 pandemic's financial effects might influence equity markets and personal lives. This includes financial commodities like coffee, which the pandemic is predicted to damage. Coffee tourism is an emerging new kind of tourism in Thailand, formed in response to growing demand from visitors with a particular affinity for the beverage. Coffee tourism may contribute considerably to the expansion of Thai tourism if given the proper guidance and assistance. As part of a coffee tourism experience focusing on first-hand activities and information, tourists can visit neighbouring sites while on a coffee plantation. This research uses a stochastic neuro-fuzzy decision tree (SNF-DT) to analyse coffee tourism in Thailand. The research surveys 400 international and Thai coffee tourists. According to studies, Thai visitors mostly visit coffee tourism locations in Thailand for enjoyment. They also wanted to visit coffee fields in order to get personal knowledge of coffee production and marketing. Based on the comments of Thai visitors, coffee tourism in northern Thailand looks to be highly and effectively handled. Due to the same factor, responses from foreign coffee tourists indicated that many of their journeys to coffee tourism destinations were made entirely for enjoyment rather than the business. They also wanted to meet local tour guides and acquire handmade and locally produced things to understand more about coffee tourism. According to study results, coffee tourism management in northern Thailand looks well-received by international tourists. We also compare the suggested model to the traditional one to demonstrate its efficacy. The performance metrics are prediction rate, prediction error, and accuracy. The estimated results for our proposed technique are prediction rate (95%), prediction error (97%), and accuracy (94%). Major global businesses such as tourism have been harmed by COVID-19's unprecedented effects. This study attempts to determine the role of coffee tourism in livelihoods based on real-time data using a machine-learning approach. More research is needed to analyse the factors of the coffee tourism experience using different machine learning approaches.

New evidence on crude oil market efficiency

AbstractThis paper examines the Efficient Market Hypothesis (EMH) in crude oil amid the “financialization of commodity markets” and the “fracking revolution”. It applies the generalized spectral derivative test (Hong and Lee 2005) on both West Texas Intermediate and Brent spot and futures markets, alongside a stochastic dominance test (Linton et al., 2005) to investigate arbitrage opportunities across markets and benchmarks. The findings indicate that financialization has made each market more efficient but also created more arbitrage opportunities in spot‐futures markets at both benchmarks. The fracking revolution has fragmented oil markets but had little impact on EMH in individual markets or across markets.

Evaluating the Mediating Mechanism of Perceived Trust and Risk toward Cryptocurrency: An Empirical Research

In recent years, investing in cryptocurrencies has become a fad worldwide. However, fewer studies have explored the intention of using cryptocurrencies. Different from traditional financial commodities, cryptocurrencies have a unique appeal. Therefore, this study uses technology mindfulness, technology readiness, and financial literacy, and through perceived trust and perceived risk, to understand users’ intentions to use cryptocurrencies. The respondents to this study were cryptocurrency owners or those having financial investment experience. A total of 337 valid samples were obtained and analyzed by the partial least square-structural equation model (PLS-SEM) method. The results showed that technology mindfulness and negative technology readiness significantly impacted perceived trust and perceived risk. On the other hand, perceived trust and perceived risk significantly impacted the intention to use. Finally, this study proposes theoretical and practical implications which can help cryptocurrency trading platforms understand the motivations of potential and existing users. Finally, this study can also serve as a reference for cryptocurrency trading service providers to develop marketing strategies.

The evolution of commodity market financialization: Implications for portfolio diversification

The financialization of commodity markets is a well-documented phenomenon spurred by the massive growth of institutional funds directed into commodity indices from the mid-2000s. More recent research suggests that a subsequent era of de-financialization has coincided with the retreat of institutional investors. This paper uses a latent factor model to examine the dynamic impact of commodity market financialization on spot currency, commodity and equity market linkages, focusing on countries with ‘commodity currencies’. The financialization period is characterized by increased interdependence of non-oil and oil commodity markets with each other and with other asset markets, implying reduced diversification potential. We find that commodity markets have become more highly interconnected with currency and equity markets of the large commodity exporters over the most recent sub-sample. We suggest that apparent de-financialization may be attributable to contagion effects from global crisis events, including the Great Recession and the European Debt Crisis of 2012.

Selling to Wall Street: Theorizing the Financial Commodity Audience in Network Era Television

Although the business-friendly policies and neoliberal ideologies of the 1970s and 1980s certainly accelerated the financialized state of media industries, it is necessary to understand how cultural production has long been subject to the vicissitudes of finance capital. Complementing histories on the role of banking in the formation of the U.S. film industry, this paper explores the interrelationships between finance and a nascent U.S. television industry. Examining trade press discourses and contextualized quantitative data, this case study asks how financialization affected the structures of postwar U.S. broadcasting and the programming and audience targeting of the American Broadcasting Company (ABC) between 1953 and 1964. Rather than simply representing an external force constraining artistic production, the thrust of financialization created a fundamental reorientation of ABC from the inside out. Indeed, during this period, ABC shifted its target audience to, in part, please financial intermediaries but paradoxically alienated those financial elites in the process by turning away from culturally legitimate genres like anthology dramas and high-brow variety series. In charting these continuities and changes, this paper offers a theory of the “financial commodity audience” that helps articulate how financial stakeholders have valued a particular type of viewer: white coastal elites, particularly men. The evidence presented in this case also suggests that cultural industries have been well suited to the extractionary logics of financialization due to the intangibility of their assets and imagined audiences. In this way, media histories remain critical to understanding the power dynamics of financialization and contemporary media industries.

Hedging firm's idiosyncratic risk from commodity financialization

We investigate the effect of commodity financialization on firm's idiosyncratic risk. Our results reveal a positive effect of commodity financialization on firm's idiosyncratic risk. Derivative usage and diversification strategy can negatively moderate the positive effect. Moreover, the positive effect of commodity financialization and the moderating effects of derivative usage and diversification strategy are more pronounced in firms with lower-quality information environment, lower hedging efficiency, and higher cash flow volatility. Additionally, we find that the relationship between the two hedging instruments is complementary, and the increased idiosyncratic risk caused by commodity financialization can be priced into the cost of equity.

Dynamics of a Newly Established Agricultural Commodities Market: Financialization, Hedging and Portfolio Diversification in Turkey

The purpose of this study is to investigate the dynamic relationship between financial assets and agricultural commodities market in Turkey. For this purpose, first, this study investigates financialization of agricultural commodities with a newly established agricultural commodities market of Turkey. Second, this paper analyzes hedging and portfolio diversification performances of agricultural commodities. By employing the DCC-GARCH approach of Engle (2002) and spillover index approach of Diebold and Yilmaz (2014), we analyze the financialization of agricultural commodities and calculate optimal hedge ratios and portfolio weights between two classes of assets. The results show the financialization of agricultural commodities at a very early age in Turkey. There exists a low degree of comovements and volatility spillovers between financial assets and agricultural commodities. Second, we show that agricultural commodities do not hedge financial investments sufficiently but they perform very well in terms of diversification and boost portfolio performances. Considering the previous limited literature on the topic, this study contributes to the literature by displaying the dynamics of a newly established agricultural commodities market in an emerging market. The findings of this study have many important implications for farmers and producers of agricultural commodities, and financial market actors such as individual investors, hedge funds and investment banks in terms of risk management and hedging.

Financialization and Commodity Markets Serial Dependence

Recent financialization in commodity markets makes it easier for institutional investors to trade a portfolio of commodities via various commodity-indexed products. We present several pieces of novel causal evidence that daily exposure to such index trading results in price overshoots and reversals, as reflected in negative daily return autocorrelations, only among commodities in that index. This is because index trading propagates nonfundamental noise to all indexed commodities. We present direct evidence for such noise propagation using commodity news sentiment data. This paper was accepted by Bruno Biais, finance. Funding: Z. Da acknowledges financial support from the Beijing Outstanding Young Scientist Program [Grant BJJWZYJH01201910034034] and the 111 Project [Grant B20094]. K. Tang acknowledges financial support from the National Natural Science Foundation of China [Grants 71973075 and 72192802]. Y. Tao acknowledges financial support from the Start-up Research Grant of University of Macau [Grant SRG2022-00016-FSS]. L. Yang acknowledges the Social Sciences and Humanities Research Council of Canada for financial support [Grants 430-2018-00173 and 435-2021-0040]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4797 .

The predictive power of commodity prices for future economic growth: Evaluating the role of economic development

AbstractThis paper investigates the extent to which commodity prices can predict economic growth, the growth exposure of the countries to specific commodity group, and whether the country stage of development matters for growth dependency on commodities. We use a novel time‐varying mixed‐frequency vector autoregressive model to jointly estimate causality between monthly commodity prices and quarterly economic growth for the period from January 1980 to March 2020. Our findings suggest that growth dependency on commodities varies over time and across different synthetic measures, but in general solid evidence of predictability is determined. The overall commodity index shows better performance in predicting economic growth than the segregated proxies of either fuel or non‐fuel commodities in developed economies. However, the overall commodity index is as effective as the fuel index in predicting economic growth for their developing counterparts. We develop a new index of global commodity growth connectivity (GCGCI) to determine the economic growth dependency on commodities over time. Our results show that economic growth dependency on commodities has increased at least three times with financialization of commodity markets. The GCGCI for all commodities reveals a higher growth dependency on commodities in developing countries than developed ones in the post‐financialization period. Interestingly, we find that growth decreases its reliance on fuel commodities in both developed and developing countries after financialization of commodity markets. Our findings bear implications for policymakers to design stabilization policies in an attempt to protect economies vulnerable to commodity price shocks and lay the foundation for sustainable economic growth.

Forecasting Commodity Market Synchronization with Commodity Currencies: A Network-Based Approach.

This paper shows that some commodity currencies (from Chile, Iceland, Norway, South Africa, Australia, Canada, and New Zealand) predict the synchronization of metals and energy commodities. This relationship links the present-value theory for exchange rates and its connection with commodity export economies' fundamentals, where prospective commodity price fluctuations affect exchange rates. Predicting commodity market return synchronization is critical for dealing with systemic risk, market efficiency, and financial stability since synchronization reduces the benefits of diversification and increases the probability of contagion in financial markets during economic and financial crises. Using network methods coupled with in-sample and out-of-sample econometrics models, we find evidence that a fall in the return of commodity-currencies (dollar appreciation) predicts an increase in commodity market synchronization and, consequently, in commodity market systemic risk. This discovery is consistent with a transitive capacity phenomenon, suggesting that commodity currencies have a predictive ability over commodities that extend beyond the commodity bundle that a country produces. The latter behavior would be exacerbated by the high financialization of commodities and strong co-movement of commodity markets. Our paper is part of a vigorously growing literature that has recently measured and predicted systemic risk caused by synchronization, combining a complex systems perspective and financial network analysis.

Financial production and the subprime mortgage crisis

The causes of the 2007-8 subprime crisis continue to be the subject of much debate, with explanations ranging from de-regulation and fraudulent behavior to global imbalances and rising inequality. However, a comprehensive analysis of the endogenous forces that made the crisis inevitable has yet to be presented. This paper offers a ‘structural’ interpretation of the crisis by synthesising insights from conventional financial economics and the Minskyian and Schumpeterian literature. While highlighting the innovative character of US financial firms evolving from credit providers to producers of financial commodities, we stress the key features of their path towards financial fragility.  We contend that financial institutions were able to achieve progressively unsustainable positions due to the ‘enforced indebtedness’ of US households, which played a functional, albeit secondary, role in the development of the crisis.

Dynamic Relationship between Volatility Risk Premia of Stock and Oil Returns

This study investigates the relationship between the volatility risk premia (VRP) of stock and oil returns. Using daily data on VRP from 10 May 2007 to 16 May 2017, VAR analyses on the stock and oil VRP are conducted, and it is found that the effects of the stock VRP on the oil VRP are limited and, if any, short-lived. In contrast, the VRP of oil has significantly positive and long-lasting effects on the stock VRP after the financial crisis. These results suggest that investors’ sentiments (measured by VRP) are transmitted from the oil to the stock market over time, but not vice versa. This is unexpected because the financialization of commodities means a massive increase in investment in commodities by investors in the traditional stock and bond markets; hence, the direction of effects is thought to be from the stock to the commodity market.